11 MAY, 2022

Home loans are a convenient means to buy your dream home. You can distribute the cost of the house over an extended tenure by choosing a comfortable Equated Monthly Instalment (EMI) amount. However, as home loans are for a long term, extending up to 20 years, it is natural for home loan interest rates to fall or rise during the tenure. You could find yourself in the middle of the tenure when the rates have fallen or when another lender is offering lower interest rates on home loans. It can be disappointing when you realize you need to pay interest at a higher rate unnecessarily. Thankfully, the option of a home loan balance transfer exists. By transferring your loan, you can reduce your interest rate and save money. Let’s find out how it works.

 

What is a home loan balance transfer and how does it work?

A home loan balance transfer is a facility where the lenders allow you to transfer or switch your home loan from one lender to another. Through this option, you can change your lender mid-tenure and get additional benefits and lower EMI.

When you apply for a home loan refinance, the new lender pays off your outstanding repayment amount. Once the loan is closed, you are required to pay the remaining EMI to the new lender at their interest rates and preferably reduced EMI. 

 

Why opt for a home loan balance transfer?

 

  • Lower interest rates

The best benefit of a balance transfer is lower interest rates. You can lower your EMI and save money by transferring your loan for lower interest rates.

 

  • Loan restructure

With the home loan refinance, you can restructure your loan too. You can switch from fixed to floating interest rates and vice versa. Moreover, if you are facing problems paying the EMI, you can restructure your loan to get a longer tenure. 

 

  • Better facilities

If you are unsatisfied with your lender, this is the time to leave them behind. You can get better facilities from the new lender like top-up loans and doorstep facilities when you transfer your loan.

 

What to consider before opting for a home loan refinance?

 

  • Negotiate with the lender

Transferring your loan is not free as you need to pay various charges. Therefore, before opting for refinancing by paying these expenses, make sure to negotiate. If you have been paying EMI on time, they might lower the interest rates.

 

  • Consider the expenses

You would need to pay an administrative fee, processing fee, prepayment fee, etc., for switching the loan. This can dilute the savings you expect to make with the transfer. Therefore, before you opt for home loan refinance, ensure to do a cost-benefit analysis to know your actual savings. You can use a home loan balance transfer calculator to ascertain your savings with the transfer.

 

  • Tenure remaining

Experts opine that you should switch your loan at the beginning of tenure when the interest component of EMI is the highest. If a considerable tenure has passed and you have paid a significant amount as repayment, switching might not be a great idea.

 

A home loan balance transfer is a helpful tool to reduce your home loan interest rate and you can easily avail this feature online. However, it is crucial to know your savings by the transfer. If there is no significant difference in the interest rates, you might end up paying more transfer expenses than you save. 

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.